Myopic loss aversion: Demystifying the key factors influencing decision problem framing

Hardin, Andrew; Looney, Clayton A.

doi:10.1016/j.obhdp.2011.11.005

Cited by 27 publications

(41 citation statements)

References 34 publications

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“…Consistent with previous MLA studies [19,36], incentives yoked monetary payments to performance. Participants earned a base compensation of two U.S. dollars (USD), as well as a bonus ranging between zero and 10 USD.…”

Section: Methodssupporting

confidence: 80%

“…Derived as a slightly loss averse variant of Samuelson's wager [34], the most commonly operationalized alternative is a prospect possessing a one-third chance of gaining 250% and a two-thirds chance of losing 100% (+250%, 0.3333; -100%, 0.6667) per trial [7,16,18,19]. The second utilizes historical market data [9,28,36].…”

Section: Hypothesesmentioning

confidence: 99%

“…Whereas short-term information horizons present prospects as a single trial, long-term information horizons display the combined probabilities and payoffs over a series of repeated trials. Evidence demonstrates the superiority of long-term information horizons in facilitating broader decision frames [9,19,28,39]. Because riskier assets are less likely to produce an overall loss over extended time periods, broad framing alleviates loss aversion.…”

Section: H 1 : Mcdss Users Will Construct Riskier Portfolios When a Mmentioning

confidence: 99%

“…Therefore, investing experience was captured as a continuous variable in terms of years. In addition, willingness to take risks is heavily influenced by risk tolerance [19,28], conceptualized as the degree of market volatility an individual is willing to bear [3]. Finally, according to prospect theory, individuals experience outcomes relative to a reference point [23], which adapts over time in the direction of gains and losses [2,5].…”

Section: Control Variablesmentioning

confidence: 99%

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Multi-criteria Decision Support for Investment Decisions: Examining the Interactive Effects of Risk Profile, Information Horizon, and Prospect Format

Looney

Hardin

2015

2015 48th Hawaii International Conference on System Sciences

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Using a psychological approach toward designing a Multi-Criteria Decision Support Systems (MCDSS), three prominent design features -risk profile, information horizon, and prospect format -are embedded in a MCDSS to help users overcome a tendency to build overly conservative investment portfolios. Consistent with myopic loss aversion theory, users exhibit a decreased willingness to take calculated risks when a MCDSS presents risk profiles with more variation and larger probabilities and magnitudes of losses. Such risk profiles prove particularly problematic when extended information horizons (e.g., 10 years) prevail. Regardless of risk profile, a MCDSS can activate heuristic-based decision processes by presenting multi-trial prospects in a manner that overwhelms cognitive capacity. Implications for theory and practice are discussed.

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Section: Methodssupporting

confidence: 80%

Section: Hypothesesmentioning

confidence: 99%

Section: H 1 : Mcdss Users Will Construct Riskier Portfolios When a Mmentioning

confidence: 99%

Section: Control Variablesmentioning

confidence: 99%

See 2 more Smart Citations

Multi-criteria Decision Support for Investment Decisions: Examining the Interactive Effects of Risk Profile, Information Horizon, and Prospect Format

Looney

Hardin

2015

2015 48th Hawaii International Conference on System Sciences

Self Cite

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“…One example of many is myopia, the tendency to search for immediate gratification and to fail in long-term planning (e.g. Hardin & Looney, 2012). Even if people know that biases may occur in human judgment, they tend to unconsciously ignore the possibility to be biased themselves (Pronin, Olivola & Kennedy, 2008).…”

Section: Automaticity and Consciousness "The Intuitive Mind Is A Sacrmentioning

confidence: 99%

Self-Leadership in Purpose-Driven Organizations: Analyzing Human Perception for More Integrated Decision-Making

Pircher

2015

SSRN Journal

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Bargh, 2006), dual-system approaches (e.g. Kahneman & Frederick, 2002), self-regulation (e.g. Muraven, Baumeister & Tice, 1999, Moffitt et al., 2011), and self-leadership (e.g. Manz, 2013. From this foundation I derive guiding self-leadership guidelines for more sustainable internal balancing and more comprehensive integration of external stimuli. Such self-leadership guidelines allow leaders and organizations to identify blind spots more easily and to improve the perception of the inside and the environment. In purpose-driven organizations with distributed authority, the power to decide is distributed among those employees who appear to be competent for the specific topic. Therefore especially within such organizations this self-leadership competency appears to be crucial for success.

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Broad bracketing for low probability events

2020

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Individuals tend to underprepare for rare, catastrophic events because of biases in risk perception. A simple form of broad bracketing—presenting the cumulative probability of loss over a longer time horizon—has the potential to alleviate these barriers to accurate risk perception and increase protective actions such as purchasing flood insurance. However, it is an open question whether broad bracketing effects last over time: There is evidence that descriptive probability information is ignored when decisions are based on “experience” (repeatedly and in the face of feedback), which characterizes many protective decisions. Across six incentive-compatible experiments with high stakes, we find that the broad bracketing effect does not disappear or change size when decisions are made from experience. We also advance our understanding of the mechanisms underlying broad bracketing, finding that, while cumulative probability size is a strong driver of the effect, this is dampened for larger brackets leading people to be less sensitive to probability size.

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Myopic loss aversion: Demystifying the key factors influencing decision problem framing

Cited by 27 publications

References 34 publications

Multi-criteria Decision Support for Investment Decisions: Examining the Interactive Effects of Risk Profile, Information Horizon, and Prospect Format

Multi-criteria Decision Support for Investment Decisions: Examining the Interactive Effects of Risk Profile, Information Horizon, and Prospect Format

Self-Leadership in Purpose-Driven Organizations: Analyzing Human Perception for More Integrated Decision-Making

Broad bracketing for low probability events

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